February 6, 2023

By Mark Heschmeyer
CoStar News

The real estate industry’s interest in special-purpose acquisition companies, popular in the pandemic’s first two years among investors raising funds to buy and take firms public, has steadily evaporated this year as inflation and rising interest rates disrupt capital markets.
Also known as SPACs or “blank-check” companies, these entities gained a prominent profile in the commercial real estate industry when a SPAC was used to let WeWork make its debut on the New York Stock Exchange in October after the flexible office space provider failed at an attempt to go public on its own.
SPACs are public companies without commercial operations that have two years to find a business to buy or merge with. Of 27 real estate-related SPACs that were the subject of CoStar stories over the past two years, only seven completed a merger. And shares of those seven companies fell an average of 39% from their initial public offering or merger date price through Sept. 23, while an AXS Investment exchange-traded fund with the 25 largest SPAC companies spanning industries had a negative return of 63.75%. And through July, of 53 SPACs that began trading in 2022, only 15 had risen above their IPO price, investment bank Renaissance Capital found.
When it comes to the 27 real estate-related SPAC offerings in CoStar stories in the past two years, three were withdrawn with no stock issued; two were being terminated. The most notable example of a termination came last month when real estate mogul Sam Zell decided to dissolve the SPAC backed by his Equity Group Investments and return the money it raised to investors after it failed to close any deals.
Another seven have yet to identify a merger target. Four have identified firms, but no merger has occurred. The target of one SPAC, Aurora Acquisition Corp., is considering backing out.
Of those 27 real estate-related SPAC offerings, the widest gap between launch price and current price was for Latch, a maker of building entrance systems that was taken public through a SPAC put together by New York real estate developer Tishman Speyer and valued at $1.56 billion.

On Friday, Latch was trading at about 84 cents per share, down from its launch price of $10 per share and off its 52-week high of $14.86 per share. Its market value shrank to about $122 million.
In August, Latch filed notice with the Securities and Exchange Commission that the audit committee of its board of directors had determined the company’s consolidated financial statements for 2021 and the first quarter of 2022 “should no longer be relied upon as a result of material errors and possible irregularities” related to the sale of its hardware.
Latch recently laid off 115 people, about 37% of its workforce. Law firm Rosen recently announced an investigation of potential misleading securities claims on behalf of Latch shareholders. Latch declined to comment. CoStar also reached out to Tishman Speyer, but it did not provide any comment or additional information.
Tishman Speyer has a second SPAC in the market still in search of a target.

The most high-profile real estate firm to go public via a SPAC was WeWork, which did so last year through a merger with BowX Acquisition Corp.
As of Friday, WeWork was trading at about $3.12 per share, down from its launch price of $9.82 per share and off its 52-week high of $14.97 per share. Its market value stood at $2.28 billion. The merger deal with BowX was originally tagged with a value of $9 billion.
Aurora Acquisition Corp. announced a deal in May 2021 to acquire Better.com, an internet-based lender of home loans that had completed more than $24.2 billion in loans at the time. The merger was valued between $6.9 billion and $7.7 billion.
The deal has yet to close while the home mortgage industry has been hit hard by rising interest rates. Better.com has had multiple rounds of layoffs. And Aurora said last month that Better.com notified the SPAC it was reviewing alternatives.
Also in this group, last month David Simon, CEO of Simon Property Group, the largest U.S. mall owner, resigned as chairman of Simon Property Group Acquisition Holdings. His son Eli Simon, who serves as the Simon SPAC’s CEO, replaced his father as chairman. The SPAC has not identified a target firm.
Other SPAC merger deals that were scrapped include Shake Shack founder Danny Meyer’s plan to help Panera Brands go public with his USHG Acquisition SPAC. USHG decided not to participate in an IPO, citing “deteriorating capital market conditions.” And Crown PropTech Acquisitions, a SPAC led by real estate holding company Crown Acquisitions, announced a deal in November to acquire smart building tech firm Brivo in a deal valued at $808 million. Brivo notified Crown last month that it elected to terminate the deal.
Other key real estate firms with SPACs still in the hunt for acquisition targets include brokerage Cushman & Wakefield and developer Silverstein Properties. Neither firm responded to requests for updates.
Even companies such as brokerage giant CBRE, which completed a successful SPAC merger late last year, told CoStar that in a year when the Dow Jones Industrial Average is down a little more than 19% through Sept. 23, it doesn’t make sense to try another one.
The firm’s CBRE Acquisition Holdings completed its $1.6 billion business combination in December with Altus Power, a provider of solar power solutions for commercial tenants and properties. Altus Power then went public, with its stock trading on Friday at about 19% above its IPO price. The company also reported a 41% increase in second-quarter revenue compared to the previous year and posted a quarterly profit of $21.6 million versus a small loss a year earlier.
“The great outcome we are seeing is a direct result of the strategy we had with the formation of the SPAC,” Emma Giamartino, CBRE’s chief financial and investment officer, told CoStar in an email.
However, in light of current financial market conditions, launching another SPAC right now is out of the question, she said. The brokerage would "consider" pursuing the strategy again only "under the right financial market conditions,” she added.

That cautious sentiment is reflected in SEC data. Through the 18 months starting at the second half of 2020 through the end of last year, 877 entities filed blank-check registration statements with the SEC — an average of 49 per month. That activity has slowed considerably this year, with only 72 filings in eight months, an average of just nine new offerings per month.
In addition, SPACs that have raised funds are now dissolving without finding an acquisition target in their prescribed time frame. More than 130 offerings have been withdrawn or terminated this year, SEC data shows.
Investors are now “terrified” about losses in value caused by the decline in stocks this year, Kristi Marvin, founder of SPACInsider, a provider of SPAC data and publisher of a trade journal by the same name, said in an interview.
The explosion of SPAC deals that started in 2020 led the Congressional Research Service, a public policy institute that works exclusively for the House and Senate, to issue a reminder concerning the practice: that in the past companies acquired by SPACs had a reputation for underperforming those that pursued traditional public offerings.
The SEC also stepped in during the filing surge, questioning the optimistic revenue projections used by startups that were merging with SPACs. The agency issued a warning that could require some SPACs to restate their financial results, a move that began to temper the rise of new offerings.
“Like everything else in this market, SPACs have been getting hammered all year against this backdrop of inflation,” Marvin said. “Like most market participants, everybody is kind of sitting on the sidelines.”

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